Income Taxes

9 Months Ended

Sep. 30, 2024

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The effective tax rates from continuing operations for the three and nine months ended September 30, 2024 were expenses of 27.7% and 25.1%, respectively, which differ from the U.S. statutory rate of 21.0% primarily due to state income taxes, foreign income taxes, non-deductible executive compensation, and return to provision adjustments, partially offset by the benefit of noncontrolling interest for which we do not provide income taxes, excess tax benefits associated with equity-based compensation, and changes in state tax laws.

The effective tax rate from continuing operations for the three months ended September 30, 2023 was an expense of 18.6%, which differs from the U.S. statutory rate of 21.0% primarily due to state income taxes, foreign income taxes, non-deductible executive compensation, excess tax benefits associated with equity-based compensation, taxes not recorded on our non-controlling interests in partially-owned subsidiaries, and the remeasurement of deferred tax liabilities due to state tax law changes and rate reductions enacted during the third quarter of 2023.

The effective tax rate from continuing operations for the nine months ended September 30, 2023 was an expense of 2.8%, which differs from the U.S. statutory rate of 21.0% primarily due to the release of residual taxes out of AOCI; the re-measurement of our net deferred tax liabilities due to the acquisition of a subsidiary and state tax law changes and rate reductions during the year; changes in our valuation allowances; state income taxes; and foreign income taxes.

During the nine months ended September 30, 2023, one of our partially-owned subsidiaries released residual tax effects that had previously been recorded in AOCI. This deferred tax benefit was originally recorded before the partially-owned subsidiary was treated as a flow-through entity, remaining in AOCI until the underlying book-to-tax difference no longer existed, which occurred during the nine months ended September 30, 2023. As a result, we recorded an $11.9 million income tax benefit in our Consolidated Statements of Operations during the nine months ended September 30, 2023.

Pursuant to the acquisition of a subsidiary during the nine months ended September 30, 2023, we re-measured our existing deferred tax assets and liabilities, taking into account the expected change to state tax apportionment. This resulted in an increase to our net deferred tax liability of $3.2 million in the period, which was recorded through deferred income tax expense.

The tax provision for the nine months ended September 30, 2023 also reflects a $4.0 million tax benefit related to the net impact of an adjustment to valuation allowances, primarily for deferred tax assets in Mexico, state tax loss carryforwards, and federal tax credits.

The total income tax receivable position as of September 30, 2024 was $5.0 million primarily for state tax overpayments. As of September 30, 2024, our income tax payable for federal, state, and foreign income taxes is $23.4 million, which is included in accrued liabilities in the Consolidated Balance Sheet.

Deferred income taxes related to railcars in our lease fleet were $1.1 billion as of both September 30, 2024 and December 31, 2023.

Our federal tax return years through 2020 are closed under statute and the years 2021-2023 remain open. We have state tax returns that are under audit in the normal course of business, and the statutes of limitations for our Mexican subsidiaries' tax returns remain open for audit for 2018 and forward. We believe we are appropriately reserved for any potential matters.

During the nine months ended September 30, 2024, Canada enacted a 15% minimum tax on all companies that operate in its jurisdiction, consistent with one or more Organization for Economic Co-operation and Development Global Anti-Base Erosion Model Rules ("Pillar Two"). We do not expect that Canada’s enactment of Pillar Two will have a material impact to our income tax expense. Pillar Two legislation has not been enacted in the other jurisdictions in which we operate, and we will continue to monitor our potential exposure as more jurisdictions adopt these provisions.